After five years of little change, retailers in New Zealand are confronted with spiralling inflation, which is driving up grocery prices. Competition from new Asian markets is also squeezing local operators. How are the established players fighting back? CAD and Catherine Sleep report.
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Has the multiple retail sector in New Zealand come of age? Grocery sales have been virtually static for five years. Between 2000 and 2004, annual turnover in the grocery sector inched up by just 6% to €6bn (US$7.2bn).
As for the number of grocery stores, this is rising primarily due to a proliferation of modern formats such as convenience stores in service stations or small 24/7 supermarkets. In 2004 the industry body New Zealand Retailers Association said there were more than 2800 such stores nationwide. The Auckland area alone, favoured by New Zealand retailers and with 1.3 million inhabitants the country’s largest city, is home to 910 supermarkets while just 654 serve the entire South Island.
A further sign of the maturity of the market is that there seems to be little space for new players. The market is roughly split in two. Market leader Foodstuffs Ltd has a 55% market share, with its 650-plus shops throughout New Zealand generating turnover of €3.4bn. The first Foodstuffs cooperative was formed in Auckland in 1922 and the company is now divided into three regional cooperatives. Foodstuffs (Auckland) Ltd covers the North Island from Turangi and Taumarunui and has 169 stores, while Foodstuffs (Wellington) Co-operative Society Ltd serves customers in 154 stores in the southern half of the North Island and Foodstuffs (South Island) Ltd covers the entire South Island, operating 329 stores. The company has a number of activities, but its grocery fasciae are New World, Pack’N Save, Write Price, Four Square Discount and On the Spot.
Foodstuffs’ archrival, Progressive Enterprises Ltd, became the second-largest retailer, with a market share of 45%, via its 2002 acquisition of Australian chains Foodtown and Woolworths, which had been active in New Zealand since 1929. Progressive Enterprises now operates more than 200 stores under a number of banners: Woolworths (63 stores), Foodtown (30), Countdown (57), Super Value (31), Fresh Choice Stores (12) and Woolworths Quickstop and Micro Stores (23). The company, which employs more than 20,000 staff, does not disclose financial figures.
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By GlobalDataDiscounters performing well
Although it seems that the players in the grocery game are already lined up, play could still be affected by a number of factors. The first is the spread of the hard discount format, driven by the price inflation of grocery products (up 6.2%), well above the 3% average inflation in New Zealand). The Warehouse chain was the first to position itself unequivocally in the hard discount sector and it has continued to nibble away at the larger players’ market share. The Warehouse now has 80 stores.
Farmer Trading Company, a company that has hitherto concentrated on selling non-food products at low prices, also appears to be interested in retailing perishable items and is launching some food lines. Founded in 1909, this company operates around 60 stores in New Zealand.
Organics booming
The second factor that could crack open the duopoly between Foodstuffs and Progressive is the current craze for organic produce. The organic market is very young in New Zealand, and still undergoing rapid growth. Trends in food consumption in New Zealand are similar to those seen in other developed countries, such as an increase in uptake of foods that are quick to prepare, snacks and ready meals. Nevertheless, for some years now there has been a growing interest in health issues. Indeed, the number of food intolerances has been steadily rising, and more than 20% of the population qualifies as obese.
In fact, alternative food products such as organics are booming to the point where they are creating a real niche in the market. Three private organisations provide organic certification: Bio-Gro, AgriQuality New Zealand and The Bio Dynamic Farming And Gardening Association. Sector leader Bio-Gro itself handles the certification of €50m worth of food products. This is a market which does not yet have its own dedicated sales network, but that is surely set to change.
The third major factor impacting the multiple retail network could be the opening of the market to countries in South East Asia. At the end of 2004, the members of Asean (the Association of South East Asian Nations), of which New Zealand is a dialogue partner, agreed to liberalise the exchange of goods with China. This agreement will create the world’s largest free trade area by 2020.
The New Zealand market
Covering 270,000 km2, the territory of New Zealand comprises two islands. The overall population of around four million inhabitants is divided 75%-25% between North Island and South Island. Despite the recent global economic recession, growth in New Zealand was 3.5% at the end of 2003. This is primarily attributed to macroeconomic and structural reforms put in place during the last decade. Household consumption remained dynamic, up 4.1% in 2003, which also made a vital contribution. Low unemployment (4.6%) and a steady inflation rate of between 1% and 3% also proved conducive to sustained economic activity.
However, the fall in immigration, which has been a feature of recent years, has a tendency to diminish domestic demand. Moreover, the New Zealand market is relatively small, which intensifies competition. In fact, for some time considered one of the most protectionist markets in the world, New Zealand only ventured onto international markets in the mid-1980s when it loosened up trading relations with Australia.
Major players
Foodstuffs Ltd: 650 stores under the following banners: New World, Pack’N Save, Write Price, Four Square Discount and On the Spot
Progressive Enterprises Ltd: 200 stores under the following banners: Woolworths, Foodtown, Countdown, Super Value, Fresh Choice Stores and Woolworths Quickstop and Micro Stores
Catherine Sleep translated this article from the French with permission from its authors, French retail news service CAD.
